New Look takes new look at public markets

PE-backed New Look hopes to raise £650m by re-floating. But will once-bitten investors be twice shy?

Last Updated: 10 Feb 2015

Not for the first time, New Look is planning to return to the public markets. The fashion retailer, which is currently owned by two private equity firms, hopes the re-listing will raise £650m to pay down its whopping debts and fund expansion. New Look has had a pretty impressive track record lately – it’s been growing at nearly 12% year-on-year. But given the disastrous performance of some other PE-backed retail flotations in recent years (notably Debenhams), not to mention the dubious prospects for the high street this year, some investors might be inclined to give it a wide berth…

In some ways, New Look is a classic private equity success story. Since UK buyout firms Permira and Apax bought the business in 2004, it has doubled its retail space; it now has over 600 stores in the UK, plus another 400 or so in 12 other countries. Group revenues have been growing at a compound annual rate of nearly 14%, while here in the UK, retail sales have been growing at 11% per year – more than twice the average within the ‘value fashion’ segment, and almost ten times as fast as the clothing market overall. It’s now the second biggest seller of women’s clothing and accessories, with a 5.3% market share.

However, New Look’s period under private equity ownership has had a big impact on its balance sheet. It now has debts of more than £1bn, which means an annual interest bill of over £100m – about half last year’s profits. Hence the need to pay down debt, so it can afford further expansion. Apax and Permira, on the other hand, have apparently already doubled their original investment via two refinancings. So any money they make from the float will be pure profit.

All of which might make investors nervous. When the two firms last tried to offload the business back in 2007, bidders baulked at the £1.8bn asking price – now the enterprise value could be as high as £2bn. That’s a huge earnings multiple. What’s more, public company investors got their fingers badly burned with Debenhams, another debt-laden retailer that PE firms dumped back on the stock market at a huge profit, only for the share price to plummet. CEO Carl McPhail insists New Look is different; that the rise of value fashion both here and overseas makes it a great growth story. But investors will be wary of making the same mistake again, particularly in a year when consumer spending is expected to fall.

Optimists may see this news as a sign of the UK stock market’s recovery. But that depends whether anyone can be persuaded to buy the shares...

In today's bulletin:

BP bullish despite 45% drop in annual profits
New Look takes new look at public markets
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